Pharma analyst Sarabjit Kaur Nangra of Angel Broking is of the view that price rise seen on Ranbaxy Laboratories post Q4 was justified because numbers on both the sales front and operating front were healthier. Moreover, if the company is able to handle the USFDA issue quicky and provide more clarity on those then the stock may take a cue from here on.
However, according to Surajit Pal of Prabhudas Lilladher the USFDA issue will lead to further big consultation costs which could eat up the margins going forward.
Ranbaxy Laboratories, which has been struggling for drug production due to USFDA issues, reported a net loss of Rs 159 crore for the fourth quarter (October-December) as against loss of Rs 486.55 crore in same quarter last year. The loss was due to inventory provision for Toansa, higher tax expenses and finance cost..
Pharma analyst Surajit Pal of Prabhudas Lilladher and Sarabjit Kaur Nangra of Angel Broking anlyse the numbers on an interview with CNBC-TV18's Latha Venkatesh and Ekta Batra.
Latha: First thoughts on Ranbaxy numbers, Rs 257 crore taken as write-off for the US FDA, questions on Toansa, was that the unexpected which has created this loss?
Pal: No, it was expected because once there is an import alert that means whatever the product you have created for next quarter, will definitely go for inventory write-off, one.
Two, if there had been no inventory write-off then I think they would have made profit this quarter.
I had drawn forex losses but it was a small amount but it was tough to get the exact inventory write-off amount.
Ekta: Your comment on the margins which have come in at 9 percent this quarter?
Pal: That is very good. I believe they have got good sales in Absorica which drove their profit margins.
However, if they did not have this kind of fiasco in Mohali and Toansa, when they already had the big fiasco happened for three plants and they were capable to ensure the present scenario of their revenue items, they would have been already on a high; they would have been in a path of 12-13 percent kind of margins.
Now along with these things there will also be another big charge of consultation cost, which will be going up and that will eat away the margin too going forward.
Sonia: Ranbaxy is up 3 percent obviously reacting to that better than expected margin performance but do you also agree with Surajit Pal that going forward despite the margin performance being good the overhang of the US FDA issues will continue to restrict the upside on the stock?
Kaur: That is true because the main concern in Ranbaxy so far has been the operating performance and going by this quarter it seems that they are doing better off at that front.
So I think from here on the market and the stock will react to how responsive the company would be and how timely they would be from here on to rectify the issues that are there on their hands.
Latha: In the numbers itself what is your comment, revenues growing by over 7 percent, margins coming in better than expected at 9 percent. Your first thoughts, does it justify the price rise now?
Kaur: The price rise is definitely justified because the numbers both on the sales front, operating matrix seems to be healthier and that is something which we have been also watching out for quite a long time.
So now only issue left is with respect to US FDA which is hanging over there future performance - if that company is able to handle in a quicker manner and give clarity as to most of these issues will be resolved going forward, I think the stock will take a cue from here on.
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